Hello, everyone, and thank you for joining Peter Beaven and myself as we present BHP's 2019 financial year results. As always, please note the disclaimer and its importance. Today, we announce a strong set of results built on our foundation of simplification, capital discipline, and culture. This underpinned record cash returns to shareholders and a return on capital employed of 18%. It's a product of our strategy, which over the past five years has seen us increase volumes by 10% and reduce unit costs by over 20%. Our focus remains as strong as ever to maximize cash flow, maintain capital discipline, and increase value and returns. There are significant opportunities ahead to further transform our business and grow value and returns for our shareholders. First, let me give you a rundown of our full-year results.
Higher prices and solid operating performance contributed to underlying EBITDA of $23 billion at a margin of 53%, as well to strong operating cash flows. We used this cash to progress attractive growth projects, and after disciplined investment, converted this into a free cash flow of $10 billion. We've announced a record final dividend of $0.78 per share. That's a 73% payout ratio of $4 billion, which is on top of the $17 billion already distributed to shareholders this year. We've also invested in our future. We've had further exploration success in copper and oil. With the approval of the Ruby oil and gas development this month, we now have six major projects under development. All of these are on schedule and on budget, and they deliver average returns of around 20%.
We apply the same discipline to our small projects as we do to our major ones. We achieve these results all through the hard work and ingenuity of our people. Their health, their safety, and their well-being is and will always remain our highest priority. It's with great sadness that last December, our colleague, Allan Houston, died at the BMA's Saraji mine in Queensland. Allan's death impacts us all and serves as a stark reminder of why safety must always remain at the forefront of what we do. After a thorough investigation, we could not determine the direct cause of the incident. However, we have identified several areas for improvement. As always, we share the detailed findings of this investigation and redoubled our commitment to safety. Of course, it's reinforced our drive to improve our safety culture and strengthen the quality of our field leadership program.
This year, our leaders again spent more time in the field as they coach their teams to identify and speak up about safety risks. While we saw a slight increase in total recordable injury frequency to 4.7 per million hours worked, we reduced the rate of events with a potential to cause a fatality by 18%. We are encouraged by this result. Nonetheless, there is still more work to do. Last year, we reduced our Scope 1 and 2 greenhouse gas emissions compared to our target baseline by 3%. It's a good result, but we again have more to do. That's why just last month, we committed $400 million to address emissions across operations and our value chain. Safety and our approach to global warming are critical components of our overall focus on social value. We'll update you on this more later this year.
I'll now hand over to Peter to take you through our financial performance in detail.
Thank you, Andrew. A solid second half performance sustained our strong earnings and further strengthened our financial position in the 2019 financial year. Excluding onshore U.S., we generated underlying EBITDA of $23 billion with a margin of 53% and underlying attributable profit of nine and a half billion dollars. These results are largely in line with last year and demonstrate the consistency of our business, a product of our diversification and solid operational performance. Including onshore U.S., underlying attributable profit was $9.1 billion, up 2%, and underlying earnings per share increased by 5% due to fewer shares on issue following the buyback. This year, we recognized an exceptional charge of $818 million. This consists of a $240 million gain related to global taxation matters resolved during the first half, and a $1.1 billion charge related to Samarco.
This is largely due to updated estimates for Renova's programs and a provision for accelerated decommissioning of the Germano Dam. Including these, our attributable profit was $8.3 billion. Higher prices and a stronger U.S. dollar increased EBITDA, as shown on the waterfall chart. We delivered underlying productivity improvements of $1 billion with record throughput at our Chilean copper assets and record volumes at several Australian operations. However, these gains were offset by several factors. Significant resource headwinds, most notably copper grade decline, had an $800 million impact. Unplanned outages in the first half amounted to another $800 million. We had a higher unit cost in coal due to a higher strip ratio. Stable operations in the second half have locked in this year's underlying productivity gains. Over the medium term, we expect grade and strip ratios to stabilize and our transformation program to further improve operational performance.
Our results were underpinned by significant contribution from each of our commodities. Western Australia Iron Ore generated EBITDA of $11 billion at a margin of 65%, the highest since 2012, when prices were double 2019 levels. Though an 18% increase in prices clearly helped, this outstanding result can be attributed to our team's ongoing efforts to realize cost and volume efficiencies. We finished the year with record volumes at Jimblebar and an exit run rate above 290 million tons per annum. Despite the train derailment and the cyclone, we continued our multi-year track record of reducing unit costs. For the full year, we delivered sector-leading C1 costs of below $13.00. We will not only sustain, but build on the strong performance in future years. In copper, optimized maintenance strategies produced record throughput at each of our Chilean operations. This helped offset a 12% decline in concentrate grade at Escondida.
Despite this, and payments of the end of negotiation bonus to the unionized workforce, Escondida's absolute costs remained flat year-on-year. However, with prices 13% lower, overall copper EBITDA decreased to $4.6 billion. While Escondida's medium-term cost guidance remains unchanged at less than $1.15 per pound, guidance for next year reflects significantly lower by-product credits. Our coal business contributed EBITDA of $4.1 billion at a margin of 45%. A solid operating performance, which included record production at BMA, helped offset a 10% increase in strip ratio and the impact on unit costs. Finally, in petroleum, higher prices and strong uptime performance supported a 14% increase in EBITDA to almost $4 billion. Total production increased by 1%, despite planned maintenance activities and natural field decline of around 5%.
Even with fluctuations of prices and volumes over the past few years, our diversified portfolio has provided strong and stable cash flows. Over the last year, net operating cash flow was $17 billion, in line with the previous two years. After disciplined investment, free cash flow was $10 billion. BHP has now generated over $35 billion of free cash flow over the past three years, and this excludes the $10 billion in proceeds from the sale of onshore U.S. Our capital allocation framework informs every financial decision we make. We use it to transparently guide capital between the balance sheet, investment, and shareholders in order to maximize value and returns. It's continued to work well. I'll step you through this. Over the year, we maintained our strong balance sheet and reduced net debt by $1.7 billion to $9.2 billion. Investment in maintenance, growth projects, and exploration totaled $7.6 billion.
Guidance for CapEx remains below $8 billion for the 2020 financial year, and at approximately $8 billion for 2021. With our balance sheet strong and capital expenditure at the optimal level, remaining cash has only one place to go. Over the past 12 months, we returned $17 billion to shareholders, a record amount. Today, we announced a further $4 billion in cash returns with a record final dividend of $0.78 per share. This includes $0.53 under the 50% payout ratio and an additional amount of $0.25 or $1.3 billion. We're acutely aware of the current trade tensions and consider downside scenarios in all our cash allocation decisions. With our balance sheet's solid operational performance and a flexible dividend policy, we're well-positioned to weather any future volatility.
Before I move on, let me remind you that under the new financial reporting standard on leases, IFRS 16, approximately $2.3 billion of operating leases are brought onto the balance sheet from 1st of July 2019. A change in our definition of net debt to include the fair value of debt-related derivatives will also increase net debt by $200 million. Had these changes been in effect at 30th of June 2019, net debt would have been $11.7 billion. Additional new leases commencing in the 2020 financial year, largely related to the desalination plant under construction at Spence, are expected to increase net debt by a further $1.3 billion.
Reflecting these impacts, which total $3.8 billion, we've revised our net debt target range to between $12 billion and $17 billion. There is no change to our cash flows due to the application of IFRS 16, and we continue to expect net debt to remain at the lower end of this revised target range in the near term. Over the year, our return on capital employed, excluding shale, was 18%. Our Western Australia Iron Ore business led the way with a near 40% return on capital. Strong operational performance, particularly in the second half, allowed us to capitalize on higher prices. Queensland Coal again provided us a strong return of around 30%, despite the stripping and weather challenges over the period. Conventional petroleum posted a significant year-on-year improvement with a return of just below 20%, up from 12% in the prior year.
Our copper assets had a tougher year from a returns perspective, as softer prices, grade decline, and unplanned outages at Olympic Dam and Spence weighed on returns. At Pampa Norte, returns on the existing business, so excluding SGR, are 16%. While there are bright spots in underlying performance at Olympic Dam, the team there is focused on delivering a multi-year program of work to improve stability and growing production through access to higher-grade ores and increased throughput. Both are key to improving returns. In summary, we delivered well against our plans. We exited shale cleanly, invested in high-return projects, reduced net debt, and returned a record amount to shareholders, including the buyback of limited shares at below AU$28. With our operations stable over the past six months, we've delivered AUD 1 billion of underlying improvements in productivity, building on the past few years. We're pressing ahead.
Our transformation program and strong suite of options will offset inflationary and resource headwinds and set us up to deliver, at 2017 prices, returns around 20% in the medium term. We'll remain focused on maximizing cash flow, maintaining capital discipline, and increasing value and returns in accordance with our capital allocation framework. Thank you.
We operate in an uncertain world. Unpredictable policies, trade volatility, and a slowdown in global growth have weakened confidence and affected commodity markets. We do remain cautious about the short-term outlook. As we look ahead, we are positive about the long-term outlook. We know this because we run scenarios and monitor strategic themes to guide our actions in order that we create a portfolio of assets and options that thrives in any future. From this, we are confident that our portfolio is well-positioned to seize the opportunities that will come from the inevitable population growth, higher living standards, and mega trends such as electrification and decarbonization, all of which are likely to increase demand for our products for decades to come.
Our timely demerger of South32 and more than $18 billion of divestments have shaped our portfolio around some of the world's best assets across commodities that all have attractive fundamentals. With our simplified portfolio, we've made significant changes to our operating model to consolidate functions globally and embed common processes, systems, and practices. Since 2015, we've sustainably reduced overheads by more than $1.5 billion. The continuation of our transformation programs, which include World Class Functions, will remove an additional $500 million. To further harness the power of our operating model and maximize efficiency, we invest in our people and in our centers of excellence for maintenance, engineering, projects, and geoscience, and in automation and other areas of innovation, all of which create a culture and a workforce that is more empowered and connected than ever and will allow us to meet future challenges.
It will also drive greater operational and capital productivity, and ultimately cash generation for years to come. For example, our maintenance team at Daunia last year used new technology and the BHP Operating System to refine their work. This reduced truck downtime from one hour to just 20 minutes per week. When we apply this across Daunia's fleet, this equates to additional coal production of around 25,000 tons each year. This is just one initiative at one mine. Imagine the impact of these incremental improvements when they're applied all the way across BHP. We also know that a diverse workforce that represent the fabric of our communities is safer, it's more innovative, and more productive. That's why we are focused on greater female and indigenous representation across our global workforce.
That includes our aspirational goals to achieve gender balance by 2025 and to increase indigenous employment in our Australian businesses by over 40% by the end of 2020. A strong, empowered, and inclusive culture, our simplified portfolio, and world-class assets increase our competitive advantage and set us up for long-term value and returns. Let me now turn to our business performance. We had a strong year, and it was built on improvements we've already made. Over the past five years at Western Australia Iron Ore, we lifted plant and equipment performance to well above design capacity of 240 million tons a year. In total, we've increased production by 20% and reduced costs by 50%. We're now the lowest cost iron ore producer and have plans to go lower as we work towards 290 million tons a year on a sustainable basis.
Over the past five years at Queensland Coal, despite a 14% increase in strip ratios, we have increased production and reduced unit costs by over 15%. At Olympic Dam, while the surface operations have experienced challenges, underground development has progressed well with record kilometers drilled. We've made good progress to catch up on maintenance, and our plans are now firmly focused on the stabilization of the asset and medium-term growth. Finally, over the past five years at Nickel West, the team has reset its cost base and created options to increase annual production to well above the current 90,000 tons. Increased exploration has already delivered positive results with contained nickel reserves now more than 75% above 2018 levels. This, Nickel West, is a valuable asset to hold as we monitor the expected growth in battery markets.
Across our Australian assets, our new Operations Services model will reduce our reliance on external contractors and mitigate skilled labor shortages. While we're in the early stages of its rollout, at the most established sites, we've already seen improvements in labor productivity of 20% and a reduction in injury rates of 50%. As part of our transformation program, we expect the gradual deployment of autonomous trucks at our Australian coal and iron ore sites. They'll unlock further efficiencies. A decision to proceed with our first deployment at Queensland Coal's Goonyella Mine is expected to be made by the end of next month. Over the past five years at Escondida, despite grade decline of 35% and higher power and water costs, a 50% lift in concentrated throughput at Escondida and a 10% higher site-wide recovery have maintained annual production from Escondida at approximately 1.1 million tons.
They've kept their costs flat at just over $1 a pound. We've achieved all of this while improving the sustainability of our assets. Across our Chilean operations, we've made large and early investments in desalination at both Escondida and Spence, and that will reduce our reliance on the aquifer. In the medium term, we aim to source most of the power for this process from renewables at significantly lower cost than current carbon-based sources. At Spence, we deploy new leaching technology, which has increased throughput and improved recoveries. In just two years, it's up by 14%. The growth project to unlock the hypogene at Spence is on budget.
We now expect first copper production to be ahead of schedule in the first half of the 2021 financial year, so that together with the current operations, total annual copper production over the first four years will now reach 300,000 tons. At Jansen, final lining is being installed in the shafts. We expect this to be completed by early calendar year 2021 as we finalize the feasibility study in parallel. In copper exploration, we added to our set of options in Ecuador, in Canada, and Mexico. In petroleum, over the past five years, our operating performance and high-return infill drilling programs have stemmed fuel decline and delivered strong margins, as well as reducing unit costs by 25%. Mad Dog Phase 2 and Atlantis Phase 3 are on schedule and on budget. Just this month, we approved the Ruby project in Trinidad and Tobago.
In the medium term, the combined volume produced from these major projects will more than offset fuel decline and lift our total production. During the 2019 financial year, we discovered hydrocarbons at seven of our nine wells, and we had drilling success in Mexico, the U.S. Gulf of Mexico, and Trinidad and Tobago. Over the past two years, our petroleum exploration strategy has increased our 2C contingent resources by more than 55%. This is a lead indicator for future production, and it excludes our evaluation of the successful Phase 3 drilling campaign in northern Trinidad and Tobago and the latest well at Trion, which was drilled in July. This well didn't encounter a gas oil contact as expected, and that indicates there's more oil there than we previously thought.
To recap, over the 2019 financial year, our disciplined execution of plans, simplified portfolio of world-class assets delivered a strong performance. We carry this momentum into the 2020 financial year as we remain focused on cash flow, capital discipline, and volume returns. In the year, we expect volume growth of 2%, disciplined investment in our quality set of options, and a further increase in return on capital employed, which at spot prices will reach 90%. Although we're well-positioned for the future, there's still more we can and will do to maximize the value of our assets. Our transformation programs will standardize the way we work. It'll lift our workforce capability, establish innovative partnerships, and create more stable and predictable operations. Our future prosperity also depends, though, on our ability to cultivate more opportunities.
We have a strong set of options to grow value that spans various stages of development and covers a range of commodities. They're also spread across each quadrant of the risk-return matrix. This allows us to balance return on capital employed, value growth, and cash returns to shareholders. Our discipline framework makes sure always that we deploy capital and cash to the right project at the right time. To conclude, BHP is set up to deliver strong returns over the short, medium, and long term. We have a solid outlook for both volume and costs. The quality of our assets, our strong balance sheet, our empowered culture, and capable workforce will grow value for decades to come. BHP is well-positioned for a great future. Thank you. Hello, everyone, and thank you also for joining Peter Beaven and myself to discuss BHP's result for the 2019 financial year.
I'm also joined in the room by Tristan Lovegrove. He's our new Chief Investor Relations Officer, who many of you will have the opportunity to meet over the next few weeks. In the 2019 financial year, we delivered record cash returns for shareholders. The board has declared a final dividend of $0.78 per share, or approximately $4 billion in total, on top of the $17 billion we've already returned to shareholders this year. Higher prices and a solid underlying operating performance contributed to an EBITDA of $23 billion at a margin of 53%, and of course, strong operating cash flows, which after disciplined investment, we converted into a free cash flow of $10 billion. Over the year, our return on capital employed, excluding share, was 18%. Operationally, strong results in petroleum and iron ore offset lower contributions from copper and from coal.
Over the past five years, BHP's volumes were up 10% and unit costs were down by over 20% across our major assets. In that same period, our Western Australia Iron Ore business has increased production by 20% and reduced costs by 50%. That means we are now the lowest cost iron ore producer in the world. We achieved these results through the hard work of our people, and that's why their health, safety, and wellbeing is, and always will remain our highest priority. It was very tragic that last December, our colleague, Allan Houston, died at BMA's Saraji mine in Queensland. After a lengthy and thorough investigation, we could not determine the direct cause of this incident. We did, however, identify several areas for improvement and, of course, have redoubled our commitment to safety.
We enter the 2020 financial year with a very positive outlook for our business. That's because we have a simplified portfolio of world-class assets and a strong balance sheet. As you've seen today, with a high quality of operation. We have six major projects on track and on budget in iron ore, copper, oil, and potash. We have exploration licenses in the world's top basins with options for future development, a greater focus than ever on workforce capability, getting an empowered culture and technology, all to add up to further transformations of our business to improve its efficiency and effectiveness, both in terms of operational efficiency and capital efficiency. That's why I'm confident this will deliver value and returns for shareholders for decades to come. I'll leave it there and open the line now for questions.
Our first question comes from Paul Young from Goldman Sachs. Please ask your questions.
Hi, Paul.
Yeah, good morning, Andrew. A very clean set of results here. Just a few questions on copper and then oil. First one's on the FY 2020 cost guidance at Escondida. I see production's increasing by 5%, yet unit costs are actually increasing 10%. I'm wondering what's driving that and what will drive unit costs down to a medium-term target of $1.15 a pound as grade declines? The second one, Andrew, is on the oil division. I appreciate all the drilling and reserve disclosure. That's much appreciated. Question's actually on Trion. I see that your 2C reserves have increased by about 200 million barrels so far. I'm curious about, this is really shaping up now, what is your total reserves for the field now? Any upside scenarios you can talk about? Do you have a target for first year of production? Thanks.
Okay. Let me handle the oil question and then perhaps, Peter, you might want to just go into the detail of the copper question. There are some issues there, quite complex, to do with co-product credits and how we mine through the ore body. That we may have to get back to you on, but Peter can give you some of the things. On Trion, yes, the last well drill on Trion didn't find a gas oil contact. We thought there was a reasonable amount of gas in the crown of the structure. We now realize there may not be a gas cap. If it is, it's very small. Therefore, that combined with some of the other wells, has increased, particularly the liquid content of that deposit.
I don't have the exact reserves to hand, but I'll get the IR guys to get back to you on that. Of course, we are working hard with the authorities in Mexico to figure out now what we think should be a very impressive development and the right phasing to do that. Maybe, Peter, you might want to add to some of the detail of the copper. Sure. Paul, just as always, a few things sort of moving in Escondida. Firstly, probably another 5% down on grade this year. This FY 2020 year. Then it sort of stabilizes, happily. In the meantime, we've got that. At the same time, we've got lower by-products. A little bit of grade, and obviously a little bit of price, but mostly grade. As you know, it's a gold thing.
Offsetting that, also, we have higher stripping, so that's also going to crimp. Again, after FY 2020, it sort of settles down again. Offsetting that is more productivity. Story continues at Escondida, and we will get more throughput. Recoveries are going quite well. It's not just a recovery thing by pushing material out of leaching into concentrates. Obviously, that's been a very big thing. Also, we are getting decent recoveries out of the sulfide leach as EPP4 really starts to hit its straps. A decent story there. It'll continue to be, I think, a very good cash returner for us for the next decade, depending on copper prices, obviously.
Next question.
Our next question comes from Sam Webb from Credit Suisse. Please go ahead.
Hi, Sam.
Hi, Andrew. Just two from me quickly. Scarborough, if we can start with some comments from your partner this week. Just interested in what are the key terms from your perspective still to be determined to reach an investment decision here. Is early 2020 still feasible from your perspective? On Met Coal, strip ratios still expected to unwind over the medium term and just conscious that we increase again in FY 2020. When is the first year that strip ratios are expected to come down?
Okay. Look, on Scarborough, again, I'll half answer the core one, and Peter may have a bit more of the detail on one or two of these things. On Scarborough, there's not a lot I want to say. We've enabled this development in the first instance by effectively selling down half of our holding previously to Woodside. They ultimately then bought out ExxonMobil. That just definitely moves it up the queue. Clearly, we think this is potentially an attractive development. The debates that we're having is how is the most effective way to process the products or the gas and associated liquids that come out of the production of Scarborough. These are very confidential discussions between ourselves and obviously the counterparties. I intend to keep them that way until we can resolve them.
Peter, I think on the Met Coal one, again, there's a lot of moving parts there, but we are looking forward to, as you've seen, we've guided to falling costs. Even though we are facing a fair bit of inflation, we believe that we can offset that through a combination of volume dilution on a unit basis as some of the increased stripping we've been doing of late really comes through. We have a number of productivity measures there as well. I think most prominent of which is a reduction in cycle times through just getting the movement of the mobile fleet more efficient. I think there's some other detail on that Peter wrote down. He may be able to fill in on that as well. That's a good summary, Andrew. I think from a strip ratio, there really is a specific question.
I think it continues at a reasonably elevated level this year, probably into next financial year, and then it starts to fall away. At the same time, as the tons come through, that's a good combination, obviously. As Andrew described this, in addition to that, we will also be able to continue to reduce costs through productivity. That's why we are expecting something in the order of a $10 a ton reduction, maybe more, in Queensland Coal.
Next question.
Our next question comes from Paul McTaggart from Citigroup. Please go ahead.
Hi, Paul.
Hi, Andrew. I just want to get a sense of resolution, and I know that's still some way off, but plenty of risks around a deep block cave. What would be, I know it's not your project, when you can obviously see what's been going on with OT, Oyu Tolgoi, how do you think about the risks around large block cave developments? What sort of level of work, and obviously in OT, there's been some discoveries around geotechnics subsequent to initial planning. How does that make you think about resolution, and what additional work do you need to do to be confident ultimately that you've got a project that's going to work for the money that will need to go into it?
Okay. You're right. It's not our project, and I do not want to give you a detailed answer to resolution. I think that's Rio Tinto's job. I might offer some more broader commentary on capital investment and block caves generally. Look, we have to find a way to test the likely performance of a block cave at resolution as cheaply as possible. We certainly have no problems with an appropriate front-running of a modest investment that would actually de-risk or otherwise the investment in that project. I think we have good agreement with the operator there. I think the more you are able to, in these large developments that we face, in some way invest a small amount of capital, which can lead to more capital being invested later, but not if it's the case to, in some way, de-risk a project, the better.
Part of our success in, I think, improving our capital efficiency, instead of going for these big bang early investments that the net present value calculation would say you should do because you're worried about the time value of money, less of a concern, I would say, these days with such low interest rates. You actually try and just get in a small way, into the elements of the project, into the ore body, understand what's going on for a small cost, which could be added to a bigger project rather than rushing in upfront. I think as you look at what we've done recently, we've actually done that, I think, quite successfully in the way, if I may add, that we've approached our Jansen development. The careful way in which we're thinking about Olympic Dam. We have similar ideas around how we might develop Trion.
Clearly, we would hope to see a similar approach at Resolution. Ultimately, this means that we spend a lot less capital. It may not make ultimate sense from an overall NPV, but the flexibility you give yourself to take account of what's going on in the marketplace, what's going on in the ore body, what's going on in the politics, what's going on in the technology, it's something I've been pushing for some time. I think we now see it in the way we do capital in BHP, and which is why we have a much lower spend, yet still can grow this company with a high level of capital efficiency. Ultimately, that flexibility is worth a lot more than it might seem if you just did a simple NPV. It's also about going slow. I always say there's value in delay.
Take your time, study, reflect on these things, and ultimately, you'll find a better way of doing it.
Our next question comes from Lyndon Fagan from J.P. Morgan. Please ask your question.
Thanks very much. My first question is just on Jimblebar. At around 60 million tonnes, it's a sizable asset, but doesn't appear to be delivering the grade that you were hoping for. I'm just wondering whether you could fully explain what's happened there. Are we behind on stripping or is there some other issue around why the grades are underperforming and how they're affecting the broader portfolio? The second question is just on the FY 2021 CapEx guidance. At around $8 billion, it's quite a bit higher than consensus. I'm just wondering if you could maybe break it down a bit, what projects are in there, how much is in there for Jansen, et cetera. Thanks.
Okay. Peter may have the FY 2021 numbers in detail in front of him. I don't. Other than that, look, the whole Jimblebar thing, I think, has been a slight misrepresentation. We've known through the mine plan that the grade was going to decline. We've been signaling to our customers, I certainly have, and through our marketing organization for the better part of a couple of years, that the grade in Jimblebar was going to change. Everyone hopes that's not going to be the case. Particularly if you're a steel mill, you think, "Oh, maybe it'll be all right, and it'll be more consistent than they say." Well, it's turned out pretty much as we predicted. So it's fully accounting, fully included in the way that we handle our marketing plans. We provided for it and we're ready for it.
This idea that there's something that's underperformed, that's taken us by surprise is just not right. I've said it. I can say hand on heart, I've had discussions with customers. I've been here with Arnoud Balhuizen , and where we've talked about that for the better part of two years, and to prepare them for that. Sometimes when that happens, even though we prepare people for it, people would rather it hadn't. Of course, I understand that. I've forgotten your other question.
It was on the $8 billion.
On the $8 billion. I just wanted to say something on that. I think what we are signaling, as I've been signaling for some time when going around, is that we have a very attractive suite of growth options that we can consider. We strongly believe, actually for the foreseeable future, that we can do them. My follow or my answer to Paul McTaggart applies in a disciplined way, and grow this company in a very capital-efficient way, but also run our capital allocation framework fairly so we get decent, today they are, of course, record cash returns to our shareholder. The capital bill is likely to be in single-digit billions. What we're saying today is that as far out as FY 2021, that's around 8. That does include an assumption that we continue with the Jansen project.
This is a project that's relatively back-end loaded in terms of costs, which gives us some of the flexibility I've been speaking about. It's in there, and it's within the $8 billion. I don't absolutely have the breakdown for FY 2021, but I do know that Jansen's in there. I don't know if Peter, while I've been talking, he's been able to flick through his notes and give you a bit more.
I'd say, FY 2021, we've probably got, there's obviously pluses and minus, but the miner and sustaining is probably relatively stable. Probably a little bit, we'll add in a bit for things like autonomy and so on, which are coming through. That's a good thing. On the major project side of things, obviously, there's a bunch of things which are underway today, which includes Spence, which are still going to be in those numbers. Those are Spence. You've got Mad Dog 2, the Atlantis Phase 3, Ruby, and so on. There is also some potential for some projects which haven't been sanctioned at this point in time. Maybe a bit for BFX, a bit for Trion, and so on. As I've just mentioned, there will still be some spend on, relatively small spend in the scheme of things, on Jansen.
That's more or less.
What makes up the eight? Obviously we wouldn't comment. I have no idea what consensus looks like, and that is what it is.
Yeah. Just so you're aware, in FY, in this year, we expect to spend about just over $2 billion on what we call maintenance capital, which is about asset integrity, reducing risk compliance requirements, and of course, normally, roughly a third to half of that is normally taken up by some form of capitalizing of deferred stripping. The balance, if you like, is all in organic growth. The major projects typically take up about $2 billion. Exploration, of course, is there. That typically takes up about $1 billion. These are round numbers. The balance is generally a bunch of smaller projects in field drilling and latent capacity work, which we, of course, in Iron Ore want to just sustainably be at 290 million tons a year. There's some small projects in there as well.
We would actually put South Flank into that category as well. That'll be well advanced by 2021, but still underway.
Just a reminder, if you wish to ask a question, please press star one on your telephone. Our next question comes from Hayden Bairstow from Macquarie. Please ask your question.
Hi, Hayden.
Hi, Andrew. Just a couple from me. Just on the cost outlook again. The $8 assumption's been lowered, so you're assuming that would've normally delivered you some wins. Just want to get a better feel for, number one, Queensland Coal, and sort of where you think the risks are to not achieving those medium-term targets, which obviously it's a wider range now, but in $8 it's certainly higher than what it was. Have you effectively sort of backed away a little bit from that medium-term cost guidance? Also just on the ROCE target, I mean, is there any impact to think about there, or are you having a few wins elsewhere that some of these cost pressures that we're seeing have offset that? Cheers.
Well, longer term we have quite ambitious plans to continue to improve on our cost base. I covered in the presentation that we'll continue to grind down on our core functional costs, and they were $3 billion back in 2014. They're now sitting at about $1.5 billion. We reckon we can take them to about $1 billion. There's been a wave of activity going on around that. The simplification, things like South32 have helped, the way we've pulled our functions together on a more global basis. Now we have major benchmarking underway and real changing the way in which we work to get there. That, of course, is in all of our numbers as well because they are allocated.
Beyond that, we continue to work on our transformation programs and lifting our workforce's capability for which productivity or efficiency and effectiveness. It's part culture. It's part also, I think, new ways of doing our business, and it's part automation and it's part technology. Who knows where that will take us as we drive forward, but we are very ambitious. On coal, I think as I said earlier, roughly speaking, we see additional $10 a ton of inflation, and that's to a large extent labor related. We have two offsets. One is the dilution of, as we spoke earlier, of getting more volume because we have increased stripping, and that starts to come through in a year or two's time. That effectively consumes the inflation, and everything else is a net negative, if you like, or reduction.
That's down to all those productivity measures, including improved mine planning, which leads to less shorter cycle times for our fleet, which means that we can just move more dirt at less cost than would be the case today. A raft of all the other things that I've spoken about, including the reliability and throughput of our wash plants, and also just the inexorable improvement in both the number of hours that a truck is running, and therefore, less time in the shop, less cost in maintenance through a lot of our pressure on maintenance, making sure the trucks are always fully loaded with better and better sensors to tell us that that's the case, and so on.
I guess if we do more than that, we might improve on our targets beyond just the $10 billion, but that kind of breaks it down in an order of magnitude way.
Our next question comes from Glyn Lawcock from UBS. Please ask your question.
Good morning, Andrew. Two questions. Just to understand your thoughts now around your steam coal business. Previously you had the tax losses at New South Wales, which you wanted to work through, you said selling Saraji was always, you're never going to get a good price given the arrangement with your joint venture partners. Just wondering why the change of heart that appears to be being put through the market. Secondly, Olympic Dam. If I'm right, it looks like you still made an EBT loss despite the insurance recovery. Just wondering how long do you persist with this? Do you think you can actually get decent returns out of Olympic Dam, sort of in line with your group target?
Okay. All right. Sorry, I just was thinking about the Olympic Dam question. One of the first questions, and I'll come back to my head.
Oh, the steam coal and the portfolio.
Steam coal. Yeah. Okay. Got it. I don't think it's been quite the kind of dramatic shift in views that you're seeing, Glyn. As we've done the portfolio work, we increasingly have concluded that this is not a business that is going to offer the prospects for growth and would compete for capital within the capital allocation framework compared to our other businesses. We obviously see a more modest outlook than perhaps some see in demand, particularly for the very long term, because of the world's concerns about global warming. We don't expect that to manifest itself quickly. In fact, we've advocated that coal needs to be part of an orderly transition.
If you like, the plentiful supply of energy coal, combined with a somewhat dampening in demand as it's going to form a smaller part of the market share going forward, means that this is a less interesting asset than others for us to invest in. It's only at 3% of our revenue. We're good at it. Both of our businesses are right at the bottom of the cost curve. Even in relatively difficult circumstances, they do okay. When we've had higher prices over the recent past, they've been good earners for us, 30% returns. We're not embarrassed by having them. As we seek to shape our portfolio going forward, I think we've been clear that this is something that is less critical to us than some other things. We're not in a hurry.
Some of the other issues, I think you summed up quite well. I think on Olympic Dam, the way to get appropriate returns out of Olympic Dam, as we've said, is barring a dramatic shift upwards in the copper price, which we're not predicting, and maybe helped by the uranium prices, which we're not help predicting either. It has to be ultimately about growing volume. Before we can grow volume, we have to really convince ourselves year after year that we can stabilize production at 200,000 tons of copper per year. While we're doing that, just eat away a bit at our costs through all the productivity actions that I've talked about in the answers to some of our other questions. This year just past, front half of the year, of course, we took a bit of a hit with the acid plant outage.
We continue to work on retooling a lot of our detection systems so we get early warning of a temperamental nature in our operations. It is a difficult set of kit to run. It's been around a long time. It was put in relatively inexpensively. You'll be aware that the system has to work perfectly because, unlike almost any other business in the world, we can't buy and sell intermediates. We've got to take everything from the mine to finished product, copper cathode and yellowcake. Any disruption anywhere along that chain, unlike, say, something like Nickel West, where we can buy and sell matte, we can buy and sell concentrate. We just don't have that optionality. Getting that stable operations is absolutely critical as a platform for growth. Again, in line with what I answered to Paul McTaggart's question, we've been careful about that.
We initially thought that we might put in a materials handling system and refurbish an old shaft in order to develop the southern mine area. We decided against that to save capital costs and really to just push and understand better what the southern mine area can deliver. We've got a better handle on that now, and that will lead to more optimal projects in the future once we can get on top of this stabilized base going forward. You've seen our plans as to how we could do a major expansion. In the long run, South Australia is a great place to do business. Adding lots of new copper is not easy, which should ultimately be good for price, as we've said. This is something that we still cherish. We know what we're doing here.
The kind of performance you're getting out of Escondida today is because we took that same attitude to crushing and conveying. Likewise, iron ore, what you're seeing today, this deliberate attempt to stabilize everything. It's coming to coal in the way I've just described in the answer to your question. Increasingly, therefore, we're able to divert more and more of our people resources and our ideas and our experience onto Olympic Dam, which, yeah, has been the last one to move. Everything else has moved, and I'm confident we'll do the same for Olympic Dam.
Thanks, Andrew.
I don't know if you wanted to add to anything on.
No.
No? Okay.
If we have any final questions, please press star one on your telephone. Our next question comes from Sam Webb from Credit Suisse. Please go ahead.
Hi, Sam.
Hi, Andrew. Circling back very quickly, just following up on Glyn's question, is there an active sales process underway for the energy coal business at the moment?
We're considering a number of options for it, and I'm not prepared to comment beyond that.
Okay. Thanks, Andrew.
Our next question comes from Paul McTaggart from Citigroup. Please ask your question.
Hi again. To follow up on iron ore, you've given us guidance for the year ahead. Potentially, we might get somewhere near the 290 million ton. Are you confident that that's a realistic, achievable year-end target, or is that sort of a stretch target that possibly we're not going to meet? I'm just trying to get a sense of, in terms of how I should think about mine ore supply/demand modeling in the years ahead.
Okay. Well, there's two questions in that. Of course, we always stretch ourselves. This is an organization which thrives on stretched targets. In general, we try to offer guidance in what we think is reasonably certain. You will have seen that this year, apart from one or two of the incidents and some of the weather issues, we actually have hit our guidance pretty well. Is 290 a stretch or is it guidance?
The reality is, in the last quarter of the year, if you take out the effects of Cyclone Veronica, we sort of ran at 290 at Iron Ore, which as you know, is 50 million tonnes above its nameplate capacity, which is a real tribute to some of the things I was talking to in terms of operational excellence that we want to transfer more and more to Olympic Dam when I was speaking to Glyn. Weather-free and incident-free, for sure, we could do that. We can't completely weather-proof things. That would be at times a ridiculous cost. We'll do our best to be more weather-proofed in the future and in everything we're doing, in pushing asset integrity, in pushing better and better routines for maintenance.
The motivation of our people is designed to actually get rid of operational incidents, albeit that we are working even at Iron Ore, which was relatively okay. It's better that way rather than completely razing and rebuilding. That would be a crazy financial decision. I would say, yeah, 290 is a little bit of a stretch, but just slightly out of reach rather than out of sight.
Maybe just, I think, Paul, we will be able to debottleneck the rail line through the RTP.
Yes
new signaling technology. That'll add capacity on the rail. We'll obviously be adding capacity via South Flank, that'll also take care of business on the mine side. That bottleneck will continue to be somewhere in between the car dumpers and the stockyard. I think we've got that reasonably in hand, and we'll be there and thereabouts over the next few years. As I say, once RTP and South Flank come in, it'll give us a lot more opportunity to be stable at that 290.
Thanks, guys.
Our next question comes from Lyndon Fagan from J.P. Morgan. Please go ahead.
Thanks again. Just a follow-up question on the market. Obviously, a strong year of Chinese steel production this year with a lot of growth. Just wondering if BHP is predicting further growth in 2020 for Chinese steel production?
Not really. No. Not really. Of course, it's hard to foresee. Part of the growth this year has come about by a bit of a stimulus on the infrastructure side, which the Chinese probably did as a defense against the impact of some of the trade restrictions. Of course, that's coincided, as you know, with outages in both Brazil and in Australia that's led to the high prices for which, of course, we've now come off quite dramatically. There is some indication now coming from our markets that strength of demand is not as it was through the peak period in China. Of course, we are seeing poorer macroeconomics, particularly in Europe now and some of the more developed markets of Asia.
Having said that, the price corrections that we've seen in iron ore and Met Coal are sort of the ones we would have expected. A lot of that is already in the market. We'll obviously watch with interest the inevitable development of these trade tensions and what is the likely Chinese response.
Thanks a lot.
Our next question comes from Paul Young from Goldman Sachs. Please ask your question.
Is this Paul?
Yeah. Hi again. Maybe a question for Peter. It's a question on the balance sheet and capital returns. Peter, you said you want to maintain the net debt at the bottom end of the range, which is quite prudent. You're a bit cautious on pricing, it appears, maybe in the near term. The question is actually around a potential off-market buyback versus investing in your business. I know we've had discussions around this on this topic over the years, you completed a $5.2 billion off-market buyback last December. Is that something that you'll consider? I know you can't always speak for the board, but is that something you'll consider again in December, January? If so, could you actually announce, in theory, a buyback before the February results, say, post the, or around the AGM? Thanks.
Yeah, I guess, Paul, every time we go to speak to the board, we inevitably speak to them about where we see our funding and so on. I suppose hypothetically speaking, yes. No doubt that the board or we just showed that we can announce capital management initiatives at any time. Really, I think as we've discussed for quite a few times in the run-up to the distribution of the share proceeds, we go through the capital allocation framework and we do it every time we think about the dividends. One of the thresholds, issues that you have to pass through is materiality. This time out, obviously, we've got 50% which locks the payout ratio, locks in the cash amount. What's left over this time was very helpful, $0.25, but it's $1.3 billion.
In the scheme of the size of this organization, that's probably a little on the smaller side of things. That's pretty much where it is. I think it's the right decision for this go around. Obviously, we made the recommendation. The board has accepted it. That's good.
I don't think there's any questions pending. We'll just maybe call it a day, and we look forward to, I do anyway, seeing many of you who've been on the line, I think on Thursday in Sydney. Until then, thank you very much. Hello, everyone, and thank you for joining us. By us I mean Peter Beaven along with me to discuss BHP's results for the 2019 financial year. I'm also joined in the room by Tristan Lovegrove, who's our new Group Investor Relations Officer. Some of you, I think, know him already from his previous jobs. Many of you will get the opportunity to meet him again in the next few weeks. In the 2019 financial year we're reporting on today, we delivered record cash returns to shareholders. The board declared a final dividend of $0.78 per share.
That's approximately $4 billion in total. That's on top of the $17 billion that we've returned to shareholders this year. Both higher prices and a solid underlying performance contributed to an EBITDA of $23 billion at a margin of 53%. Of course, that flowed through to strong operating cash flows, which after disciplined investment, we converted into a free cash flow of $10 billion. Over the year, our return on capital employed, excluding share, was 18%. Operationally, strong results in petroleum and iron ore were offset from lower contributions from copper and coal. Taking a longer-term view over the past five years, BHP's volumes are up 10% and our costs are down by over 20% across our major assets. In the same period, though, our iron ore business in Western Australia has increased its production by 20% and reduced costs by 50%.
That makes us now the lowest cost iron ore producer in the world. We achieved these results very much through the hard work and ingenuity of our people. Their health, safety, and wellbeing is and always will remain our highest priority. To this end, it was tragic that last December, our colleague Allan Houston died at BMA's Saraji mine in Queensland. We held a lengthy and thorough investigation, but we simply could not determine the direct cause of the incident. Nonetheless, we have identified several areas that are worthy of improvement, and of course, we've redoubled our commitment to safety. We enter the 2020 financial year with a positive outlook for our business. We have a simplified portfolio, all of world-class assets and a strong balance sheet.
We have six major projects on track and on budget to expand our business, and they're spread across iron ore, copper, oil, and potash. We have exploration licenses in some of the world's top basins for oil and copper. We've already made some discoveries, and we have options for future development sitting alongside them as well. We have an even greater focus than ever on the capability of our workforce's culture to make it fully empowered and getting access to the technology and the ways of working that can further transform our business. The kinds of improvements that are coming to fruition this year are certainly far from done. Probably the better part is yet to come. I'm confident this is going to deliver value and returns for shareholders for decades in the future. I think I'll leave it there and open the lines to questions.
Who's first?
Our first question today comes from Alain Gabriel of Morgan Stanley. Alain, your line is open.
Yes. Hello, Alain.
Any questions?
Good morning. Hi. Two questions from my side. Firstly, on the net debt target. Clearly you have increased it by AUD 1 billion at the bottom and the upper end of the range. The increase is less than the impact of IFRS 16. How should we interpret that increase, and why have you become more conservative on your net debt duration? That's one. Two, on the CapEx budget for 2021, slide 33. Yesterday you touched on it on the call. Can I push you a little bit more on the growth spending there? How much of that growth in 2021 is on Jansen, and are you spending any money there on the Olympic Dam expansion? Thank you.
Look, these are financial questions. Peter may want to have a go at both of them. I think I could very simply say about the lower range of our net debt target post-IFRS 16 at $12 billion. That's true, we have made it about $1 billion lower than it would have been if we'd simply just added the impact of IFRS 16 and the leases and the various derivatives and the contracts coming, if you like, into the net debt number. There are two reasons for that. The additions under IFRS are more volatile when they're mark-to-market, and so we do want to give ourself a bit of flexibility given that volatility.
It's also true that the short-term outlook, given everything that's going on in the world, which can be broadly put into the rejection of globalization and free trade, has already affected, to some extent, the oil price and certainly the copper price. It does give us some cause for concern, and that's why we've made this change to our, if you like, our medium-term targeting. Peter can talk a little bit more in detail, if you like, about the capital budget and how much of Jansen and Olympic Dam are in the FY 2021.
Yeah. As you know, we're spending $200 million or so on Jansen. We've included an amount in FY 2021. We'll have to wait and see really where we get to on the approval and so on. That's part of the possibilities, and that is the same as Olympic Dam, where I guess it's a provisional amount that's included for BFX, but again, as you well know, it hasn't gone to FID. If we get there, then we would spend that money. If we didn't, then we wouldn't.
Yeah. I think, though, it is worth saying, if I may, that both projects, particularly Jansen, if you look at the full project, it's quite back-end loaded compared to, say, investing in an oil development or even the more steady state spend of something like a South Flank. Even with that, we wouldn't, in any one year, if the project were to go ahead, be spending more than $1 billion, and that would only be for a few years at that. I think the same would hold with BFX, which of course is a much lower cost, and it wouldn't be anything like that.
Yeah. Together there would be comfortably less than $500 million.
In 2021.
In 2021.
Yeah. Okay. All right. Who's next?
Our next question today comes from Jason Fairclough of Bank of America Merrill Lynch. Jason, your line is open.
Hi, Jason.
Good morning, Jason. Yep. Hi, Andrew. Thanks for the call. Look, two quick ones from me. First, Andrew, there's a great headline on Bloomberg, which is, "BHP CEO Says Top miner Can Still Profit in Any Global Downturn." I'm just wondering, is this how you see it? Are we going into a global downturn, and what are the signs that you're looking at? Then second question is just on Samarco. You've taken another charge here related to the accelerated decommissioning of the dam. I'm just wondering, is this it, or could there be more to come? I'm trying to get a feel for how much of an open-ended liability we have here.
Okay. Well, look, I don't write the headlines. I didn't mean to maintain for any one second that, of course, the downturn wouldn't result in a decrease in profitability. Obviously, how that shows up will depend on what the impacts are. First off, of course, we do have a good portfolio, and the portfolio at the moment, of course, to some extent is working, in that we're making probably above-average margins in iron ore, or have been, and to maybe a lesser extent in Met Coal, and probably it would be the other way around for oil and gas and copper. Depending on what causes and triggers the downturn will depend on whether and how that portfolio might be balanced and to what extent it might smooth things.
If it was an oil price shock, clearly we would benefit from higher oil prices, but maybe lower margins in some of our other businesses. A general downturn, of course, would bring things down, and we would have to respond, as we could, I think, quite effectively now, Jason. I mean, we have low debt, pre across IFRS 16, 15% gearing. We have a much more flexible dividend policy now. We are continuing to save money and to cut costs to become more efficient. In many ways, the way we're phasing our projects and the discretion we're given, you got an indication of that in the answer on Jansen and Oyu Tolgoi. We have a lot of ways in which we can change our uses of cash and also to protect shareholder returns. I repeat, we don't expect to be immune and to sail through this thing.
This is a very volatile industry, as you know, and there can be quite big swings, already have been, even just in the start of this financial year in the revenue line, not all of which can be dealt with by our works on lower lines. As to whether we see a downturn as a possibility, of course we do, and that is covered a little bit in the answer to the question of having a slightly lower range to the net debt, a lower number for the bottom part of the range on the net debt target that we answered earlier.
The trade tensions around the world, the resistance that is out there to, I think, the good things that we can look for from capitalism and from globalization, the existence of many politicians in many countries where the votes are for more protectionism, more nationalism, and less globalization and the interference in global supply chains, which we, of course, fully support. Threats to the independence even of central banks. All things that we think are good for the creation of wealth, creation of GDP that ultimately drive the overall growth for our business. It's good that we're ready, a lot better ready than the last time, and we can weather a lot of storms, probably better than many companies in the sector. I think the sector itself, through having been quite disciplined, will actually be able to weather a general downturn better than other sectors.
We're not fully downturn-proof. I've gone on too much. What was your second question again?
Samarco.
Samarco. Oh, yeah. Peter probably should handle that. The bigger provision is not just for the dam and having to bring forward the decommissioning of the Germano dam, which was the dam that sat behind the Fundão dam as a result of new regulations post-Brumadinho. It also is that we've got a much better line of sight now as to what we think the likely full compensation that will need to be paid to people who have affected in terms of their living standards or their livelihoods by the dam break. The most serious ones affected have already been paid, and of course, we've invested considerably and to with great success in both the resettlement of people and the larger towns are now being rebuilt. We've got all the permits and I've got pictures in my file in front of me of new houses emerging.
In my last visit, the river is looking pretty clean and healthy, it's this compensation side of things that we still have to work away from us. It is not an open liability. We feel we've constrained it quite well. We won't let it run away from us, if we can put it that way. I can't guarantee you this is the end. Anything to add, Peter? No. Okay.
Our next question today is from Sylvain Brunet from Exane BNP Paribas. Sylvain, your line is open.
Good morning. Good afternoon, gentlemen.
Hi, Sylvain.
Two questions on costs for me. First, a few months ago, there were some reports of labor cost pressures in Australia. I was wondering in the outlook you are talking to, if you've noticed these pressures have been receding by now. The second question related to cost as well and productivity, maybe to give us a feel of how KPIs at all levels in the group are tied up with cost objectives. My last question, again, related to some press comment in July on BHP stance on coal. Wondering if the company is now taking a more active step towards reducing its exposure to thermal coal in particular. Thank you.
Okay. Look, I have that. What was the first question? Yeah, labor pressures. That's right. There are labor cost pressures around and they're most keenly felt in Queensland, to a less extent in Iron Ore. Not really seen in any other part of our operations elsewhere in the world. The bigger problem that we have is that because labor is a bit more in short supply, we have higher turnover. People don't turn up for shifts, particularly people who work for contractors. We've addressed this by Operations Services model, where we're actually steadily converting a lot of our more permanent contracting workforce, and some not so permanent, to our own contracting organization for the whole of Australia.
We pay contract rates, we also offer BHP terms in terms of sick pay, holiday pay, and a lot more training for them to build mastery because it is worthwhile doing that if they stay in our employment. This has been hugely successful. We have had great uptake of high-quality people. We have slashed the turnover, that means that people's safety culture build, its culture and productivity build. We will come to that in a moment. Already we see halving of safety rates and a 20% reduction in costs or like a 25% increase in productivity. I think we are meeting this head-on. Otherwise, inflation pressures other than the ups and downs of things like fuel costs and so on are manageable.
We believe our transformation programs are designed both to quench inflation, of which there is some, and go one better, so we can continue as we have guide to falling unit costs as we go forward. Yeah, look, we have unit cost targets increasingly, or functional cost targets, which are held at my level with the board. They're then cascaded all the way through to the front line and broken down. On the pure cost side of things, we took around about $1.5 billion of cost out of our functional costs. That are the things it takes for things like legal, HR, external affairs, supply, marketing, technology, and lots of other small functions. They were around about $3 billion in 2014.
We cut them to about $1.5 billion through the simplification that came with South32 and the divestments, also through taking a more global view of excellence across all of our functions. We had a bit of an ask and talk, we launched a new phase called World Class Functions, rigorous benchmarking down to the level of the sub-function. This requires major re-engineering and indeed, an introduction in some cases of new systems and even moving things to lower-cost countries. Those plans have now all been built and are now being delivered. $200 million are in the $1.5 billion I talked about. Another $500 million to come, mainly this year and next, which will take us from a starting point of $3 billion to about $1 billion. They are cascaded all the way through.
Beyond that, we have people who have targets to improve many of the new ways of working that will ultimately result in us being able to extend that and extend that to other parts of our business, which is more to do with maybe our variable cost base, if I could put it that way. Clearly, in order to hit lower levels of unit costs and things like iron ore, coal, and copper, you have to break all that down within KPIs to the performance of a concentrator, the performance of a strip program, and the costs. You have cutting across all of that, a whole bunch of things to do, for example, with maintenance, to do with supply, which is about things happening on time, maintenance costs being lower. The high reliability, simple trucks resulting, and that's how it's all broken down.
I can assure you, it goes all the way to the front line, and we set quite stretched targets. We don't always hit those stretched targets, but we don't mind that in some senses. We see huge possibilities there. We commit ourselves to get there. We normally aim off of it in our overall guidance to the market. Underlying that, the targets are much stretchier. If the stretched targets are not hit, in general, we reduce remuneration. Although we had a very strong year operationally when we look at our competitors, compared to the targets we set ourselves, we slightly underperformed, and so bonuses are pretty low this year right the way across the piece.
You could be assured as shareholders, or you can assure your readers as shareholders that we do not hang on to extra dollars that we have in the end by meeting our stretched targets to pay ourselves. We pass it all the way through to the shareholder or, of course, through our capital allocation framework and reinvest it wisely. BHP Coal, what Peter and I signaled around our strategy was that we do not expect to invest any more in our energy coal businesses. That's for pure commercial reasons or financial reasons. We do think this is a business whose demand will be under pressure, partly because of the transition towards cleaner air and to confront the challenge of global warming. This is a resource that, compared to some of our other commodities, is in relatively high abundance, and so we see squeezed margins in the future.
We've made a lot of money. We're sitting at the bottom of the cost curve. We don't expect our mines at Cerrejon and out of Mount Arthur are likely to close anytime soon. In fact, we think they'll probably be around for quite a few decades to come. Probably maybe not as profitable as some of our other operations and other commodities, but certainly decent. Returns of late have been typically around 30%, and we're not investing, so the denominator is wasting a little bit as well. Only 3% of revenue at the moment is coming from coal. Given that we will be investing in other commodities, it will reduce its share of the portfolio. We will examine other options, which when we have more to say, we'll say it.
Thank you.
Our next question today is from Myles Allsop from UBS. Myles, your line is open.
Yeah, great. Three questions. First of all, on petroleum exploration. You're saying that you expect material production in the mid-2020s. What does that mean in terms of FID for some of these projects like Wildling, like Trion, like Trinidad? Should we expect some sort of progress over the next 12 months to meet that mid-2020 ramp up? Secondly, on Queensland Coal, looking out to medium-term cost guidance, there's a big step down. How achievable is that? Is that only achievable if we deliver normalized volumes or are there other factors to what proportion of that $15 a ton can be delivered without a big step up in volume? Lastly, just it'd be interesting to, now that you've paid out a record dividend, you've delivered a strong balance sheet, what's your top priority now under this overtime?
Okay. Peter will deal with the third question. I'll handle the first two. Geraldine Slattery will be going around investors in November, and she will be laying out our strategy for our whole petroleum company going forward, and she will definitely address some of the emerging development plans for our major gas discovery in Northern Trinidad and Tobago. For Trion, we've announced today that that's coming in a bit bigger or a bit oilier than we expected, which is good news. Wildling as well. You'll have seen that we've sold Samurai, which was the well we participated in, which is to the north of Wildling. That gave us a better idea of what kind of production we could get out of Wildling tie back with Megan, and she'll be able to talk to you on all of these going forward.
It's obviously going well, and when you combine that with the projects underway at Mad Dog 2, Atlantis 3, and now Ruby, this is going to reverse the decline in our oil and gas production. In the next few years, it's going to start climbing again, which is a good outcome, but of course one that was fully supported by our decisions in the capital allocation framework. Just as an aside, I meant to say earlier that the discipline we have on KPIs that Sylvain asked about, that pertains very much to the separation of Shale. We've taken a business where effectively we've removed about two-thirds of its operating footprint, but we've managed to remove almost without any setting overheads.
We have a smaller business now, but one which, because of the exploration discoveries, has probably gone a long way already to replacing some of the volumes that we actually sold with the shale business. That is a very good news story. Look, on Queensland Coal, it is a bit of both, Myles. There is a bit of inflation there that we spoke about earlier. Big round numbers, as $10 a ton in inflation, and we have a $20 a ton going in the opposite direction. About half of that is from just simply volume dilution. I cannot remember how you described that, but with the additional stripping we have been doing, the greater amount of coal that will be available to mine, that is going to obviously help dilute some of the fixed costs, and that will give us $10 a ton back.
The remaining $10 is just through all the productivity we're thinking about. About half of that, from memory, comes from just improving cycle times, which is better mine plans and just higher truck hours, and then a range of a number of small initiatives which, round numbers, another five to get you say +10 and -20. Stretch targets to align that we can possibly do a little better than that. We have quite aggressive targets there. We took a slight turn for the worst in having to entertain a lot more stripping, some of which wasn't fully foreseen. I think we've got a better view of what the mine plans look in the future, and we're adding into that now.
I should say that some of the productivity things comes from automation. We did mention in our talk, our morning, your last night, that we're almost there in getting full approvals to fully automate the truck fleet at Goonyella. We've got one or two others lined up as well. We just have to line up partners. We have to line up suppliers before we can tell you the details. Peter will talk to you about the capital management piece.
No, actually, I think Myles asked you what your priority was. Now I'm happy to his talk.
All right.
I'm sure I can handle it again. Hopefully, after all these years, we'll more or less answer the same thing.
I'm not sure I would take that risk. My top priority for now, I would say Gosh. Clearly, I've got a few things that are very important to me, but I do think that just making all aspects of the Transformation Program stick is critical. This is worth potentially tens of billion dollars of value to us. It's about 70% of the value uplift. The other 30% comes from growth. I'm very confident in our plans to reduce functional costs, and I'm equally confident in some of the pushes we have in really getting this kind of step up empowered culture to the front line. Where I'm perhaps a bit more thoughtful is just the right way to pull through technology to make sure we don't just do technology for technology's sake.
We invest in those which have the highest returns and path our capital allocation framework. At the back end of that, we are now seeing the availability of enormous amounts of extra data. When we put in our backbone as a company of a single ERP, we thought we were capturing roughly about 80% of the data of the company and putting it all on a common system. The data we're getting from trucks, from engines, from people, from tires, we're probably only capturing about 20% of the data. How we really use that data in a world of increased sensors, in a world of increased artificial intelligence, and indeed how we do white-collar automation, I think is another big prize that is waiting to make another step down in cost or increase in efficiency.
Making sure that all hangs together is important to me. Well, you've heard that how we are part of the global response to climate change is something that has given me a fair bit to do as well. The projects of the growth are all good, and I'm happy with that, and they're coming through. Just because I've given you my top priority doesn't mean they don't get a fair bit of my attention. They do.
Okay. Thank you.
Our next question today comes from Reinout van Gové of VanEck. Reinout, your line is open. Reinout, your line is open. Please ask your question.
Maybe try someone else and come back to him.
Sure. Our next question is from Ian Rossouw of Barclays. Ian, your line is open.
Hi, guys. Just two questions from me.
Hi, Ian.
The first one just on your dividend policy. I'm just curious if you think the payout ratio is still an appropriate one. The sector seems to have lost quite a decent chunk of the income investors to producers as they have maintained their progressive dividend policy. I'm just wondering if you maybe can share your thoughts on a progressive dividend policy now that the business is much more robust, than what it was three, four years ago when you abandoned that policy?
You had a second question? You said two.
Yes.
What was that one?
The second one, again to you, Andrew, just on your comments previously, including the conference call overnight, that you believe the business can basically grow over time as single digit billion CapEx figures within the capital allocation framework. I was just curious or just wanted to put you on that, is whether you imply then that you can basically not go above $9 billion, even if you improve BFX and Jansen maybe over the medium term.
Okay. Look, let me have a rest. Peter can talk to you about dividend policy. Then I'll come and talk to you about CapEx.
Sure. Look, I think the dividend policy. We didn't think through dividend policy as some sort of reaction to what was going on at the time. We strongly believe the more appropriate dividend policy for companies such as ourselves, I mean, at the top end, the payout ratio will ensure that there is a healthy payout. At the bottom end, of course, it allows the dividend to flex along with the cycle. We've had many years now, quite a few years of experience in deploying it through ups and downs. I think it's been entirely appropriate. I think most importantly, when you think about your capital allocation framework and you think about your balance sheet, you think about your dividend policy, do those in fact support the overarching strategy of the company to grow value and with that returns and, of course, cash returns to shareholders?
Those are why we have the settings on our balance sheet. That's why we have the settings on our dividend policy. Ultimately, those are appropriate, and they underpin the overarching strategy. We're perfectly comfortable with how it's performing.
Yeah. Look, I think it's horses for courses. I'll take your word for it that some investors clearly want more of a guaranteed dividend to soothe their concern. Maybe they get that with some of our competitors in the oil and gas sector. I've also met those selfsame investors, or maybe not those ones, who've commended our capital allocation framework and bemoaned the fact that the oil and gas industry hasn't adopted what we do. Maybe there's been a little bit of sorting. We've had a lot of praise and congratulations for our capital allocation framework, its rigor, and its transparency. It definitely gives me, as we were talking earlier, about possible downturns, a sense that we are much more built to have some protection in the downsides.
Better than that, to have the ability to do things in the downturn which are best done countercyclically and be on our best behavior and therefore be more disciplined spenders at high points in the cycle. I think the sector has become more disciplined, which is why even though we might be facing a bit of a downturn, the impact of that is perhaps more reassuring than it might once have been, and I think particularly for us. Look, on the CapEx, it's pretty much what I say. We do a lot of forward modeling, five years, 20 years. What we tend to find is that what works well for this company, now that we've become much more efficient in the way we use capital.
That is only going to improve as we take the success we've had in the reliability of our large projects and moving them to the smaller projects get better and better at really sifting and sorting those projects. Better and better at execution by delaying and studying longer rather than rushing to avoid some disruption because of the time value of money, which is often actually less valuable than the time value of delay and thinking things better and doing the right level of de-risking. That doesn't mean that it's going to be flat because there are lumpy, the long-term capital projects. It is going to oscillate around something which on average, I think for a while, is going to be $single-digit billions. We're going to be able to grow the company.
Typically, that growth, of course, some of it comes from making things more efficient. It doesn't always show up as more volume is a partial surrogate. It normally shows up over a long period, averaged out, again, a bit lumpy. It's of the order of 2%-3% copper equivalent growth per annum. Look, I mean, Jansen and Oyu Tolgoi fed into that. These are not enormous projects. As I say, we've originally said that when we get going Jansen is going to cost, round numbers, I think it's AUD 5 billion. Is that right? It'll be spread out probably at least over many years. Probably in any one year, you wouldn't anticipate spending more than AUD 1 billion.
BFX, particularly if we don't go into a material handling facility or we just use a decline and we don't recommission a shaft, that's going to be much smaller than that, I would think. Therefore, they will fit very well within the envelope of single-digit billions in our capital budget. In our planning, they do so. Some of the things I've talked about, including short and medium and long-term, there are things where we do both those projects.
Okay. That's very clear. Thank you.
Good.
As a reminder, to ask a question today, please press star followed by one on your telephone keypad. Our next question today comes from Christian Georges, Société Générale. Christian, your line is open.
Yes. Thank you. Good morning. Two questions. Nickel West, I think that in the performance this year, possibly, again, slightly below your expectations. Would you expect this to be improving gradually, and how would you place this in the current context of remerged reduction of Indonesian nickel exports and a higher nickel price now a lot more supportive, justifying to accelerate perhaps investment in Nickel West? The second question is, what's your thoughts about what seemed to be a renewed interest for the West African inaudible assets in Guinea and so on? Is this coming closer to becoming a future source of low cost inaudible? Thanks.
Okay. Yeah, we are a little bit disappointed in the nickel performance. It's not through the best efforts of their team, but they have had one or two operational hiccups that I think don't get quite the coverage that when we do things in iron ore or copper happens. Until recently, the second part of your question, they've been dealing with lower prices than we might have expected, but they have picked up in anticipation into a quicker renewal of the export of unprocessed laterites from Indonesia. Of course, while we're holding this asset, we're anticipating that as we get closer to the lift-off of electric vehicles, that the demand for high-purity nickel that has to be made from sulfides, not laterites, at least that's what it looks like today. Therefore, you'll get a different kind of margin for that kind of nickel product.
That's not going to happen until for probably another eight, 10 years on our forecast. We're building slowly for that, and therefore it's an exciting option to hold. The return to fashionability of nickel sulfides means that we're doing more brownfields exploration with some success. Over time, of course, we will invest in developing those discoveries in maintaining our supply of nickel and probably building its production significantly above its current levels, which is about 90,000 tons a year from memory. Yeah. It's all there, as with everything, it has to pass through our capital allocation framework, has to compete with the BFXs and the Jansens on the other way around, and all development projects that Myles asked me about.
Certainly at these prices, it'll do a lot better this year, particularly if they can continue on their cost journey and avoid one or two of the incidents that took it into cash negative territory in the year just closed. I don't have a lot to say on West African iron ore. It's been there or there about for a long time. If Africa urbanizes, it would be probably sensible for it to be developed, and it would certainly provide a competitive supply of iron ore, particularly into the Atlantic market and against Brazilian iron ore. These markets aren't connected, the Pacific to Atlantic. They are well and truly.
We've always said that either West African iron ore or the cooling of the steel industry in China, more recycling in China, not immediately replaced by similar growth in India, is likely to flatten the iron ore cost curve and take us into price territories where it would be much less attractive business as it is today, which is why we create the options we have in potash, in nickel, and in copper and in oil and gas.
Just on nickel, we were profitable at the EBIT line. Yes, we spent some capital.
Yes
That was really just on Yakabindie on P11 and Venus.
Yeah. That's fine.
Arguably, that's getting ready for future growth.
That's exactly right. It's necessary good capital.
Yeah. That's a fair point. Yeah.
Okay. If there's no further questions. I think there are, the guy who didn't come through hasn't come back. Look, thanks, everyone. Just to recap over the 2019 financial year, I would say that the disciplined execution of our plans have delivered strong performance, strong cash flows, and record returns, to repeat myself, to shareholders. We will absolutely carry this momentum into the current financial year, where we do expect copper current volume growth of 2%, despite a 7% decline in petroleum volumes, largely due to fuel declines. The team have done an amazing job at arresting this year. Maybe they can last year, maybe they can this year. Pressure is declining, and we haven't yet invested enough to replace that quickly. That comes, as I said, in a few years' time. We will invest less than $8 billion in our quality set options.
The spot prices, this will further increase our cap rate or calculate the current spot prices to 9%. Of course, if you got a few weeks back, it would have been a bit higher than that, which is an attest to the volatility and some of the near-term uncertainty we're facing. We're given comfort from our strong balance sheet. Our flexible dividend policy, even if it has some detractors, and our solid and hopefully improving operation performance bolstered by many of our transformation programs. We expect therefore to improve further on our unit costs to more than, I think, quench inflation. Of course, that additional cash, along with everything else that I've spoken about, will position us well to weather any future uncertainty and to deliver strong returns and grow value through the cycle for decades to come. Thank you for listening.